Financial Literacy in Crisis

America has fallen woefully behind in providing adequate financial education to students and families, especially when it comes to student loans. Recent progress by government agencies, financial institutions and schools themselves is making up for lost time, but many college graduates will still face significant student loan debt that could affect their lives for decades to come.

That message, although difficult to hear, was the focal point of an open hearing Sept. 24 by the Financial Literacy and Education Commission, a division of the U.S Department of Treasury, on the University of Wisconsin-Madison campus. The event drew participants from the public and private sectors to discuss the need for greater financial literacy, a situation that may have reached crisis proportions in the effect its having on individuals, families and the nation at large, according FLEC Vice Chair Richard Cordray, director of the Consumer Financial Protection Bureau.

“The neglect of financial education can undermine progress in any nation organized around a free market and founded on a regime of personal responsibility, like the United States,” said Cordray in his opening remarks. “Yet Americans have neglected this important matter."

Increased financial literacy beginning early in public and private schools with an eye toward practical application is vital to continued U.S. growth and development, Cordray said. While contributions, direction and support from appropriate schools and institutions are all critical to success, the students themselves play the most important role in assuring the success of such programs.

“When it comes to financial matters nobody cares as much about you as you care about yourself,” Cordray told participants at the hearing. “Everyone must recognize that I am my own first line of consumer protection.”

Cordray was one of six speakers to offer opening remarks, a list that included Rebecca Blank, the former Acting U.S. Secretary of Commerce who is now chancellor at UW-Madison, and Melissa Koide, assistant secretary of the Department of Treasury’s Office of Consumer Policy. The lack of proper data and the growing need to control runaway student loans was of particular importance to Blank in her new role.

“Students are one of the groups at greatest risk for financial problems because they’re force to make decisions early in life that can affect them financially for years to come,” said Blank, a former Robert S. Kerr Senior Fellow at the Brookings Institution and former dean of the Gerald R. Ford School of Public Policy at the University of Michigan. “We want our undergraduates to think before charging that next pizza to their credit card.”

The majority of the two-hour hearing was given over to panel discussions that brought together financial industry and social service experts to discus several aspects of financial literacy and when it should begin in the lives of the eventual students that it will affect. The group’s consensus said education should begin as early as possible, starting will family discussions and financial education in elementary school whenever possible.

Next Page: Progress in Wisconsin

Progress is being made in Wisconsin, but there is more to do, according to David Mancl, director of the Wisconsin Department of Financial Institutions’ Office of Financial Literacy.

“Among Wisconsin’s 424 school districts, 49% of high schools now have financial literacy classroom requirements,” said Mancl. “That number is up from 25% just two years ago.”

Royal Credit Union, located in Eau Claire, Wis., is a key supporter of financial literacy, according to panelist Jennifer Block, community relations manager for the $1.3 billion community institution that serves more than 130,000 members in Wisconsin and Minnesota.

RCU this year will open its 27th in-school branch, a program that will then support branches in 17 elementary schools, 5 middle schools and 5 high schools. The credit union has hired some 2,500 student-employees to operate the school branches over the years, Block said. The experience offers students not only financial educations, but enlists them as financial literacy advocates among peers and their families, she added.

“The kids are in the trenches doing the work and encouraging their fellow students to save,” Block said. “Similar opportunities can be provided by just about any organization.”

Panelist Alex Martinez, a past participant of RCU’s school branch efforts and now a student Chippewa Valley Technical College in Eau Claire, was a strong advocate for RCU’s program and, in fact, any opportunity to provides students with hand-on experience in managing their own money.

“I’ve benefitted greatly from this program,” Martinez said. “This was a life-changing experience.”

The National Credit Union Foundation takes hands-on financial education one step further through Real Solutions, NCUF’s signature program designed to enhance and build member and consumer financial capabilities. According to panelist Lois Kitsch, Real Solutions’ national program manager, NCUF’s Financial Reality Fairs have proved especially effective with high school students.

The Reality Fair, administered through state leagues and other groups, allows students to chart their own life courses, choosing a job and starting salary, then making financial choices while operating within the budgets they have set. “Once you teach students financial literacy, many will bring it back home to their families and enable you to reach adults who have questions about the same issues,” Kitsch said